KRA loses bid to overturn minimum tax nullification

The Kenya Revenue Authority (KRA) has lost its bid to overturn the illegality of the minimum tax at the Court of Appeal.

In its judgement of the taxman’s appeal, the Court of Appeal agreed with High Court’s position which declared the tax discriminatory.

The minimum tax which had taken effect temporarily on January 1 last year, was levied at one per cent of gross business turnovers and was targeted at loss-making entities.

The High Court declared the tax null and void after a petition filed by Stanley Njuguna Waweru alongside the Kenya Association of Manufacturers (KAM), the Retail Trade Association of Kenya (RETRAK) and the Kenya Flower Council.

The petitioners argued successfully that the tax was an unfair burden as it targeted businesses in genuine loss-making, forcing them to pay taxes from their capital instead of gains and profits.

The Court of Appeal has come up with similar finding cementing the minimum tax as null and void.

“Levying of minimum tax on gross turnover as opposed to gains or profit would lead to a situation where a loss-making taxpayer, would bear a heavier burden than other taxpayers contrary to the spirit of Article 201 of the Constitution,” noted the Court of Appeal in its ruling on Friday.

“Lumping innocent entities that are in loss-making position with tax evaders in a bid to expand the tax base violates the innocent taxpayers’ constitutional right to fair treatment and dignity.”

By losing the appeal, KRA has suffered a major setback in its quest to expand the tax base for greater domestic revenue mobilisation.

In its counter argument to prop the stay of the minimum tax, the taxman insisted that many businesses had adopted structures that enabled them to return perpetual tax losses even when trading in profits so as to avoid paying any taxes.